EUR/USD meets some support near 1.1200, looks to geopolitics
- EUR/USD collapses to monthly lows in the sub-1.1200 area.
- Risk-off sentiment picks up pace on Russia-Ukraine war.
- US flash Q4 GDP, weekly Claims next of relevance in the docket.
The selling pressure around the single currency (and the risk complex in general) picked up extra pace and dragged EUR/USD to the area below the 1.1200 yardstick on Thursday.
EUR/USD weaker on Russian invasion, safe haven demand
EUR/USD adds to Wednesday’s pullback and starts the second half of the week deeply into the negative territory following the heightened demand for the greenback, all in response to broad-based rising inflows to the safe haven universe.
On the latter, the greenback gathered extra steam after Russia sets in motion its invasion to Ukraine early on Thursday, putting the risk complex under strong downside pressure and bolstering the demand for the safer assets like the dollar, yen, Swiss franc and bonds.
Indeed, money markets on both sides of the ocean show a renewed buying interest, which depress US 10y yields to the sub-1.90% area and drag yields of the German 10y Bund below 0.15%.
There are no releases in the domestic calendar, whereas another revision of Q4 GDP figures, usual weekly Claims and New Home Sales are all due across the pond.
What to look for around EUR
EUR/USD continues to look to the geopolitical scenario and risk appetite trends for near-term direction. On this, the recent deterioration of the Russia-Ukraine front is expected to keep the pair under pressure amidst solid risk-off sentiment. In the meantime, bouts of strength in the pair should remain underpinned by speculation of a potential interest rate hike by the ECB probably sooner than many anticipate, higher German yields, persevering elevated inflation and a decent pace of the economic activity and auspicious results from key fundamentals in the region. The threat to this view, as usual, comes from the Fed and a potential tighter-than-expected start of the normalization of its monetary conditions.
Key events in the euro area this week: Eurogroup Meeting, Germany Final Q4 GDP, EMU Final Consumer Confidence, ECB Lagarde (Friday).
Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.
EUR/USD levels to watch
So far, spot is losing 0.95% at 1.1195 and faces the next up barrier at 1.1326 (55-day SMA) followed by 1.1390 (weekly high Feb.21) and finally 1.1395 (weekly high Feb.16). On the other hand, a drop below 1.1193 (monthly low Feb.23) would target 1.1186 (monthly low Nov.24 2021) en route to 1.1121 (2022 low January 28).